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Onshore lessons for offshore work

The FIDIC forms of contract, the Yellow Book in particular, are commonly used in the UK for the procurement of offshore construction works. Despite their widespread use, surprisingly few disputes involving FIDIC contracts have reached the English courts. A TCC case published in April 2014 is an exception. Although it concerns onshore works it has implications for any offshore project using FIDIC contracts.

Spanish contractor Obrascon Huarte Lain SA (“Obrascon”) entered into a contract based on the FIDIC Yellow Book with the Gibraltar government (“Gibraltar”) for the design and construction of a tunnel under the runway at Gibraltar airport. It did not go well. Two and a half years into the two year contract, with only 25% of the work completed, Gibraltar terminated the contract. Obrascon claimed the termination was unlawful and that it was entitled to an extension of time due to the quantity of contaminated ground found on the site.

The contract provided that Obrascon could claim an extension of time if the ground conditions encountered could not reasonably have been foreseen by an experienced contractor at the tender date. Obrascon relied heavily on reports that Gibraltar provided during the tender process to claim that the extensive contamination (by lead and hydrocarbons) actually encountered was not reasonably foreseeable. The court rejected these arguments. The court found that it was obvious from records that the site for the tunnel had previously been used as a rifle range and then a fuel store. Therefore the type of contamination encountered was entirely foreseeable. The court noted that, “what was needed and could have been expected from experienced contractors was some intelligent assessment and analysis”.

The court also considered what level of failure on the part of Obrascon would be required to entitle Gibraltar to terminate. It concluded that “termination must relate to significant and more than minor defaults”. What is significant and what is minor will depend on the particular facts of each case. However, in deciding where the balance should lie, “a commercially sensible construction [of the contract’s terms] is required”. On the facts, Gibraltar was entitled to terminate both because of Obrascon’s failure to proceed with the works with due expedition and without delay and because Obrascon had plainly demonstrated its intention not to continue with the performance of its obligations.

Finally, the court found that Obrascon was time barred from making certain of its claims for extensions of time because it had failed to comply with the time period specified in the contract.

This case decided no new law. However, it is useful guidance on how the courts are likely to interpret FIDIC contracts.